Warren Buffet has been known to be one of the greatest investors ever. His prowess in stock picking and value investing earned him the nickname, “the Oracle of Omaha”. When he speaks, the market listens. Buffet has and follows some investment rules.
His rule number one is, “Never Lose Money” and his rule number two is “do not forget rule number one”. The fact that rule number two is a reminder of rule number one underscores the importance of rule number one.
Ordinarily, no one plans or wants to lose money in an investment venture, but like the Americans would say, “Shit happens”. Selecting investments that are always winners is not an easy task unless you are Warren Buffet.
However, research analysts at Quantitative Financial Analytics have combed through the Nigerian mutual fund industry in search of funds that have not lost money. There does not appear to be any, but they have identified 7 funds that have not lost money, on a calendar year basis, since 2012, a period of 5 years and they include:
FBN Heritage Fund
This N3.8 billion fund seeks to maximize investors return and is being managed by Laura Fisoyo-Kolawale, CFA and Kike Mesubi, CFA. The fund has delivered consistently positive return to investors since 2012 and has beaten the NSE All share index (ASI) in 3 of those five years. The fund seems to be a good protection against downside risk as the years that it beat the stock market were years when the market did poorly.
However, it does seem to have its upside limit because it fails to beat the market in periods when the market did pretty good. For example, in 2012,2013 and 2017 when the ASI returned 34.81%, 54.96%, and 42.3% respectively, FBN Heritage Fund returned 20.69%,16.74%, and 35.63%, thereby underperforming the market.
In 2014 through 2016 when the ASI generated negative returns of -16.14% for 2014, -17.36% for 2015 and -6.17% for 2016, the fund handed its unitholders positive returns of 1.22%, 2.98%, and 5.72% respectively. This could be because of its almost 50/50 asset allocation to equities and fixed income securities and its low and negative correlation with the broad market index. With a correlation of -.24, the fund moves the opposite direction with the market.
FBN Heritage Fund charges a management fee of 1.5% and has an expense ratio of 1.69%. For those who want to hedge against downside risk, this may be the fund to investigate. The fund has a risk level of 3.39 and reward of 4.17, putting it into the category of low-risk low return fund.
Nigeria International Debt Fund
The Nigeria International Debt Fund originally created as a closed-ended fund in 1997 but restructured in 2010 to an open-ended fund invests in Federal and State government bonds. The fund has the objective to reduce risk and offer safety while proving steady returns to investors.
The Nigeria International Debt fund has been consistent in handling unit holders positive returns, thanks to its dividend distribution which helps to shore up its total return. The fund generated a cumulative total return of 64.88% over the last five years beating the stock market three of those years but not on aggregate terms.
The fund is a low risk (1.63) and moderate reward (6.33) fund but it is positively correlated to the market with a very low correlation coefficient of .01.
Zenith Income Fund
Zenith Income Fund invests predominantly in fixed income financial instruments like government bonds and treasury bills. Zenith Capital is one of the least transparent fund managers in Nigeria.
This analysis is based purely on calculations by Quantitative Financial Analytics and emails to the fund manager for confirmation were not responded to. Zenith Income Fund has generated positive returns over the past 5 years totalling about 50.62% beating the market in three out the five years.
This is also a low-risk moderate return fund as Quantitative Financial Analytics’ analysis indicates that the fund has a risk of 1.03 and return of 7.39. With a correlation coefficient of .09, this fund is minimally affected by the events at the stock market.
Stanbic Absolute Fund
This fund is a member of the Stanbic IBTC Umbrella funds which includes the Stanbic IBTC Conservative and Stanbic IBTC Aggressive funds. The investment objective of the Stanbic IBTC Absolute fund is to ensure the preservation of capital with minimal risk. The Fund has been one of, if not, the most consistent mutual fund in Nigeria in terms of performance consistency.
Over the last five years, the fund generated a cumulative return of 65% within which period it never made a loss in any calendar year. Among the funds listed as having no loss for five years, this fund has the best risk-return profile of 0.43 risk and 13.74 return. It could, therefore, be classified as a low-risk high return fund.
The fund is also negatively correlated to the market as indicated by its correlation coefficient of -.2, meaning that the fund moves in the opposite direction with the market.
Stanbic IBTC Conservative Fund
Stanbic IBTC Conservative Fund invests to ensure the safety of funds as well as minimal exposure of investors to the equities market to benefit from the returns applicable to equities. The fund, whose asset allocation strategy is biased towards fixed income securities has consistently generated positive returns over the past 5 years culminating into a total of 76.75% return.
The fund is a low-risk high return fund, as a risk-return analysis conducted by Quantitative Financial Analytics indicates that the fund has a risk level of 1.71 and a return of 11.42.
Stanbic IBTC Bond Fund
Stanbic IBTC Bond Fund is a fund with the primary objective of achieving competitive returns by investing predominantly in high-quality bonds, other fixed income securities and money market instruments.
Within the last 5 years, Stanbic IBTC Bond Fund made a cumulative return of 63.62% and with a risk level of 1.37 but a reward of 9.3, it could be classified as a low-risk medium return fund.
Stanbic IBTC Guaranteed Fund
Stanbic IBTC Guaranteed Fund with the objective of achieving both capital appreciation and capital preservation invests in a collection of high grade fixed income instruments with minimal exposure to equities.
Over the past five years, the fund garnered a cumulative return of 73.5%. With a risk level of .81 and return of 10.63, this fund is one of the low risk, medium return funds in Nigeria.
One common feature of these funds is that they are almost all negatively correlated with the broad market index, the ASI, they offer a cushion to investors when the market does badly and provide the benefits of diversification for those looking to build a portfolio of mutual funds.
A New Wave: Where to Invest in H2 2020
Some of the industries that are expected to succeed given the changing times are not your usual kinds of investments.
There are two kinds of people in the world: The ‘glass-half-empty’ kind, and the ‘glass-half-full’ people. Where some see problems, others see the opportunities – same glass, but different perspectives. 2020 might have left very little hope to hang on to, but the world is still in motion.
Amidst the chaos, many have found their diamonds in the rubble – and many more will. These people, however, will be those who are willing to adapt to the changing times by repositioning themselves to leverage the opportunities that arise.
The Covid-19 pandemic has proven to be a holistic challenge, bringing to the fore a myriad of issues. It has caused a dent in the revenue/ disposable income of many businesses and individuals alike, shaken the very balance of the economy with many countries heading for unprecedented recessions, and left everyone with so much uncertainty.
Yet, we are at the cusp of a new dawn. Processes are changing, new industries are emerging, and money is changing hands. Flexibility, automation, and sustainability are just some of the words that will make all the difference in the world of business.
Dr. Ola Orekunrin Brown, the founder of Flying Doctors – a healthcare investment company – had, at the Quarterly Economic Outlook Webinar hosted by Nairametrics, offered insights into some of the industries that are expected to succeed given the changing times, and they have been outlined below. But be warned, a lot of them are not your usual kinds of investments.
Investment opportunities to leverage in H2 2020
One of the many trends that emerged in recent times, as a result of the Covid-19 pandemic induced lockdown in many parts of the world, is a huge dependence on internet technology and digital media. Everybody went indoors – and online. The entertainment sector found its home on social media through Instagram Live parties, Tik Tok, and the Houseparty App.
Companies went online as well, leveraging digital technology like Zoom, Microsoft Teams, and Slack. Even the lifestyle industry went online with online gym classes, yoga classes, and even karate classes. Not only have they provided much-needed solutions, they have also come with the additional benefit of convenience.
A good example of this is Eric Yuan, the founder of Zoom, who joined Forbes’ billionaires’ list for the first time as a result of the increased use of Zoom for work meetings. Apptopia, an App tracking firm, reveals that Zoom was downloaded 2.13 million times around the world on 23 March, the day the lockdown was announced in the UK– up from 56,000 a day and two months earlier.
Another feature of the digital economy lies in the education sector. With schools forcefully closed, classes have had to go online. Online courses, training workshops, and even full degrees will become more normal as those who work from home will see these online education courses as an opportunity to develop themselves with little effort.
Investments here will be even more fostered by access to international markets, thereby increasing the market size. ResearchAndMarkets predicts that the online education market is poised to grow by $247.46 billion during 2020-2024, progressing at a CAGR of 18% during the forecast period.
Institutions that are too big to fail
The stock market is expected to be even more volatile, given the overall unfavourable economic terrain and a high level of uncertainty – especially with all the talks of a recession coming. In H1 2020, the more favourable companies to invest in are those that have stood the test of time – the stocks that are too big to fail.
Many of these stocks have been in existence for decades and have been able to attain a level of stability as a result of their large market share and stable structures. You want financially strong companies and the reason is not far-fetched; the goal is to put your money behind the companies that are strong enough to withstand the storm to a good extent.
Another by-product of the Covid-19 induced lockdown is the increased need for internet services. Dr. Ola explains that the use of the internet as well as the move to work-from-home, are some of the megatrends of the times.
Good internet connectivity has proven to be the lifeblood that keeps digital entertainment trends, digital work trends, digital lifestyle trends, digital entertainment trends, and a huge chunk of the communication we have today. As a result of this, companies in the telecommunication industry have begun experiencing growth in revenue and earnings. Investments in this sector will most probably be worth your while.
Distribution & E-commerce
When the Okada ban took place, several motorcycle companies that were affected were forced to pivot from transporting people to moving items as full-scale delivery businesses. While many might have thought that a bad idea, the lockdown has undoubtedly contributed to the development of this industry.
The e-commerce industry is also expected to thrive with trade moving predominantly to the internet. Investments in distribution companies and e-commerce businesses are also expected to be worth your while.
One of the major hits of the pandemic is the Nigerian foreign exchange market which has now become highly volatile. The demand for the dollar far outweighs the available supply and this has forced importers and speculators alike to scramble for what is available in circulation.
Given the challenges with the FX market, international spending on foreign denominated expenses like tuition fees or international loans will come at an increased cost. To mitigate foreign exchange loss challenges, investments in USD denominated equities, and Eurobond funds will help you withstand the storm. While gains here could have you betting against the Naira, having foreign investments in your investment portfolio will come in handy.
The Agricultural industry is an expected gainer. One of the reasons for this is that local supply chains will expand, given the restrictions on the global supply chain as a result of the lockdown and the border closure. While this will also thrive, Dr. Ola Brown, explains that jobs will only be created in the short term.
This is because fewer hands will be required as productivity, better processes, and mechanization systems increase. An example of this is the new trend of robot herders in the United States. This is even more so as we compete with the rest of the world in production. Needless to say, Agriculture will always exist, given the need for food, as well as the rising global population.
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While the Covid-19 pandemic has a direct impact on the healthcare industry, the industry is a complex one. The first reason for this is that, with the healthcare infrastructure deficit in Nigeria, the government will need to invest in it to provide wide access.
With subsidies on healthcare, the free market in terms of investments might not be as lucrative with more people opting for government healthcare. However, given increased investments in the sector and the move to preventive health practices, the industry remains attractive.
For more detailed investment opportunities with specific stocks in the Nigerian Stock Market, sign up for the Nairametrics Stock Select Newsletter.
Analysis: Airtel Nigeria is winning where it matters
Airtel has left no stones unturned in ensuring that its provisions are top-shelf – subscribers to the network, of course will have their own ideas.
Airtel might have won our hearts over with internet-war adverts starring our favourite tribal in-laws, but its fundamentals are what will make us the bucks that keep us happy. Airtel Africa Ltd is a subsidiary of Indian telecoms group, Bharti Airtel Ltd; the group has left no stones unturned in ensuring that its provision of prepaid plans, credit transfers, mobile internet services, messaging, roaming facilities and more, are top-shelf – subscribers to the network, of course, will have their own ideas.
Since last year when Airtel Nigeria became the second telecommunication company in Nigeria listed on the NSE, the company has experienced a steady level of growth. With a presence in 14 African countries, the group’s strength lies in its diversity with stronger companies mitigating the poor performances of others.
Performance Overview: Airtel Africa
Airtel Africa’s report for the year ended March 2020, revenue jumped by 10.9% from $3.1 billion at the year ended 2019 to $3.4 billion in 2020. The consolidated profit before tax also jumped by 71.8% from $348 million in 2019 to $598 million in 2020. However, profit for the period dropped by 4.23% with earnings of $408 million in 2020 from the $426 million it had earned in 2019. A reason for this is the tax figure that moved from a credit of $78 million in 2019 to tax payments as high as $190 million in 2020. Total assets also jumped by 2.41% from 2019’s value of $9.1 billion to $9.3 billion in 2020 primarily as a result of their acquisition of more property, plant, and equipment (PPE). The total customer base grew by 9.3% to 99.7 million for the year ended.
Full Report here.
Revenue growth of 10.9% was driven by double-digit growth in Nigeria and East Africa. However, the rest of its African operations experienced a decline in revenue. Its success in Nigeria is especially commendable, considering the fact that the company lost more than 100,000 subscribers in Nigeria between December 2019 and January 2020. Raghunath Mandava, Chief Executive Officer, remarked that the results which were in line with the group’s expectations, “are clear evidence of the effectiveness of our strategy across Voice, Data and Mobile Money.”
Behind The Numbers – Nigeria
Airtel Nigeria’s performance indicates the company is making the right calls in a very competitive industry. Nigerians are fickle when it comes to data and voice but will spend if the service is right. The company grew its data revenue by a whopping 58% to $435 million a sign that its strategy to focus on data is working. Voice Revenues for the year was up 15% to $850 million. In total, Airtel Nigeria’s revenue was up 24.4% to $1.37 billion. Ebitda margin, a number closely watched by foreign investors 54.2% from 49% a year earlier. Operating profit for the year ended also jumped by 52.6% for the year from 2019 and 32.4% from Q1 2019. Total customer base in Nigeria also grew by 12.5%.
Nigeria is surely critical to Airtel Africa’s future seeing that it contributes about one-third of its revenue. Recent results thus indicate it is winning where it matters most and it must continue to stay this way if it desires to survive a brutal post-COVID-19 2020. Telcos are expected to be among the winners as Nigerians rely more on data to work remotely but there are other players in this game. Concerning the impact of the pandemic, he explained that at the time of the approval of the Group Financial Statements, the group has not experienced any material impact arising from the impact of COVID-19 on its business.
On cash flows…
The group has also taken measures to enhance its liquidity. The CEO explained that it is moving its focus to enhance liquidity towards meeting possible contingencies.
“Having considered business performance, free cash flows, liquidity expectation for the next 12 months together with its other existing drawn and undrawn facilities, the group cancelled the remaining USD 1.2 billion New Airtel Africa Facility. As part of this evaluation, the group has further considered committed facilities of USD 814 million as of date authorisation of financial statements, which should take care of the group’s cash flow requirement under both base and reasonable worst-case scenarios.”
To this end, they have put in the required strategies to preserve its cash as its cash and cash equivalents, consequently, jumped by 19.1%.
Investors looking at this impressive result will be wondering if this portends a buying opportunity. Airtel Nigeria closed at N298 on Friday and has remained at this price for about a month. The stock is quite illiquid and is not readily available to buy.
It’s the price to earnings ratio of 4.56x makes it quite attractive. Further highlighting this opportunity is its price-to-book ratio which is as low as 0.5273, suggesting that the stock could be undervalued. Whether it is available to be bought, is anyone’s guess.
How thieves use Covid-19 to defraud bank accounts
And how to safeguard your bank account from COVID- 19 related frauds.
An addition to the growing number of issues that banks will be forced to grapple with during this pandemic will be the issue of fraud.
Nigerian banks lost a cumulative of N15b to fraud and cybercrimes in 2018—a 537% increase on the N2.37b loss recorded in 2017 (figures from NDIC). In the same 2018 period, over 17,600 customers lost N1.9b to e-fraud, with fraud incidents rising by 55% from the previous year’s 25,043 according to NeFF (Nigeria Electronic Fraud Forum).
Although the above figures are expected to grow as more Nigerians adopt e-banking solutions, Nigerian lenders are making considerable investments to reduce these losses in the 2020 financial year.
They have earmarked more funds to sensitize their customers and ensure that their cybersecurity protocols remain updated to proactively ward off attacks on their stakeholders’ funds, even as IT teams face pressures in navigating the unprecedented challenges of COVID- 19.
Google claims to block more than 100 million phishing emails daily, and it saw about 18 million of those daily mails being related to COVID-19 in the past month. This, they say, is in addition to the more than 240 million daily COVID-19 related spamming messages—an unfortunate trend indeed for a world economy already in dire straits.
Banks’ customers and staff, however, continue to be at risk of being exposed to opportunistic schemes by fraudsters who have latched on to the uncertainty created by the pandemic to perpetrate new fraud schemes, albeit, with the same underlying principles that have been used over the years—impersonation, spamming, phishing, and malware.
How does it work?
Impersonation: Donor bodies, health regulators such as the NCDC and even international governmental organizations such as the WHO are increasingly impersonated in incoming emails, with embedded links for the necessary action of either a donation or a registration to be made.
Spamming: These messages are indiscriminately sent (spammed) to unsuspecting individuals who did not solicit or subscribe to such services. The messages almost always urge recipients to take immediate action.
Fraudsters are increasingly taking advantage of the information overload on the virus to slip in their emails to those who want to stay abreast of the situation in terms of figures, palliatives, treatment options, and inspiring stories. Many people are relieved to receive any information on COVID-19 and are increasingly not particular about the source of the information.
Phishing: The embedded links in these emails are a means of harvesting personal account details such as the PAN, PIN, and password of the target to be defrauded. This could also be got through phone calls or text messages.
Malware: Malicious software variants, which could either be downloaded to the target’s computer through a link in the mail or simply by opening the mail, could grant fraudsters access to the target’s system and by extension, the target’s network.
- Be extra vigilant. Do not open mails whose source you do not know or subscribe to.
- Pay attention to spellings of email addresses, and websites.
- Do not visit your bank’s site via links; always type in the address manually.
- Never give up your credentials to any “representative” of your bank. Not even for refunds.
- Do not make donations to unverified charities.
- When in doubt, ask a third party.
Fraud experts believe that fraudsters will capitalize on the heightened anxieties of the public during the current crisis, and have been working with banks and other financial partners to sensitize their customers on the need to safeguard their bank accounts during this period, hence this publication.
@Zolonye on Twitter.